How U.S. Tax Reform Impacts Your Canadian Business in 2020

Chances are your Canadian-founded company wants to exploit the U.S. Market and rarely do your cross-border U.S. tax reform questions have straight-forward answers. You’ve likely heard statements like:

You might be subject to tax if your business has US customers.

You might be required to file US tax returns if you have US customers.

You might want to create US legal entity or you might not want to.

Altitude Accelerator brought in Dan Lundenberg from BDO to talk about some of the critical updates on tax reform in 2020 that affects all businesses – regardless if they’re a startup or large corporation.

Impact of U.S. Tax Reform on Canadian Business

IP and Canadian Tech Companies

While U.S. corporate tax rates used to be significantly higher than in Canada, recent reform now makes them almost on parr. And while we have lost that tax advantage, a new benefit has been created in the form of IP sales. For Canadian tech companies, creating a U.S. entity may provide you with certain tax benefits such as significantly lower tax rates.

U.S. State and Local Tax Issues

U.S. states can impose both income and sales taxes on companies that have sufficient levels of business connections otherwise known as Tax Nexus  in that state. Each state has its own rules for determining tax nexus. Because of this, it can get tricky for small businesses to decide where to conduct business.

A tax nexus can be:

1. Physical – a taxable presence. This can include employees, property, or stores of inventory.
2. Economic – a threshold. This can be a certain level of sales for example.

You should be aware of your obligations as your company expands into U.S. markets. It may be helpful to review the classification under which you work with your sales presence in the U.S. If you are unsure about if and where your company has a tax nexus, you may want to utilize the services of a professional accountant to learn how to best classify your business operations and avoid unnecessary tax penalties.